Hackers Track Deal Closures as AI Makes Inroads Into M&A - DealTech

By Aurelia Seidlhofer 
Mergermarket

DealTech covers innovation, new technology and emergent trends in M&A and private equity. If you would like to give us any feedback, please contact [email protected]

Cybersecurity risks are increasing as artificial intelligence (AI) begins to transform the practice of M&A and private equity (PE), experts said.

Cyber-criminals have been quick to adopt new AI tools, leading to an expectation of increased cyber-attacks, according to the UK's National Cyber Security Centre. This is driven by the evolution and enhancement of existing tactics, techniques and procedures, according to the report.

Specialist hackers, who track which companies are closing deals, are particularly aware that information technology (IT) infrastructure may change as deals close, creating openings for maleficence, experts said.

"Businesses are particularly vulnerable while sharing information during the [due] diligence process, as well as shortly after the deal announcement," according to Peter A. Emmi, tech transactions partner at Reed Smith's New York office.

Arved Graf von Stackelberg, CEO of DriveLock, a cybersecurity software solution, said: "There are a lot more malware systems out now than there used to be, so companies need to be more cautious to protect their systems and ensure target companies in M&A are prepared for potential attacks."

As a result, cybersecurity risks have become an important part of the due diligence process with dealmakers checking whether systems are up-to date and if proper IT security procedures are being followed.

This has created opportunities for new players, such as the London-based software company KYND, which is working on solutions to protect PE firms.

Generative AI has already changed due diligence processes in M&A transactions significantly. Advisors need to consider copyright risks in Gen AIs trained on large datasets, for example. There are worst-case scenarios about deals being scrapped or repriced at the last moment due to these issues.

But on a more positive note, AI is already used to speeding up certain processes in M&A transactions.

In terms of the day-to-day work in advisory and investment firms, the tasks traditionally carried out by junior staff have been first in the line of disruption, but it will eventually change workflows across on all levels, experts said.

Efforts to deploy AI across workflows in M&A and PE have parallels with Formula 1, where "small advantages make the race," according to Wolfgang Faisst, co-founder and CEO of ValueWorks.

"Everybody will leverage AI to become more productive and tool-savviness is crucial," the ValueWorks CEO said. The company offers corporate executives an AI-powered one-stop data hub.

An army of analysts used to have the task of sifting through hundreds of companies to find comparable companies and to identify potential add-on acquisitions in M&A advisory and PE firms.

Although AI can now do this in seconds, often with better results, the tech is unlikely to replace junior staff, experts said.

Instead, it will enable dealmakers to focus on strategic-level decisions and creative thinking, according to Mark Williams, Datasite Chief Revenue Officer, Americas. 

In the legal profession AI is already widely used to review contracts and M&A lawyers expect that more tasks, which have been carried out by associates will be done by AI systems in the near future. This is likely to drive greater specialisation in the profession.

Caldwell Law's London-based Partner and Global Director of Corporate M&A Marcus Wolter told Mergermarket in July that productivity gains and innovative business models increasingly allow lawyers to move away from the billable-hour business models.

Around 40% of dealmakers acknowledged they had witnessed increased productivity through more streamlined processes, with over half saying it has the potential to speed up the M&A process by 50%, according to a survey by Datasite, a virtual data room (VDR) and software provider for the M&A industry.

Consolidation on the cards

M&A professionals who are thinking about the future of AI-powered dealmaking can win mandates along the way: end users can find it difficult to juggle multiple platforms, creating an opportunity for consolidation.

Sealk, a French publisher of AI-powered search technology that improves deal-sourcing processes, was acquired by VDR provider Datasite, which is backed by Capvest Partners, last month. It had completed two previous deals this year.

VDR provider Drooms is an example of another potential consolidator. Its Chief Revenue Officer Javier Meseguer told Mergermarket in April that it is analysing potential acquisition opportunities to complement its organic growth strategy.

The plethora of new platforms that help dealmakers and sponsors track environmental, social and governance (ESG) issues is also ripe for consolidation, market participants say. Osapiens, a German-based provider of sustainability and reporting, is a potential consolidator to track.

Whatever the future holds, one thing is certain: AI will continue to create both risks and opportunities for dealmakers from now on.